The History & Future of Salary Sacrifice: It's Not Dead, Just Evolving

Salary Sacrifice: It’s Not Dead, But it is Evolving

The History of the Benefit and Its Potential Future

Salary Sacrifice has seen huge changes, from unrivalled growth 10 years ago and massive expansion of the offering, to a complete review by HMRC which many thought might be its terminal. Even with its turbulent rise, it’s not a benefit with as short a lifespan as some might have expected, but it is one that is always evolving.

The History of Salary Sacrifice

Salary Sacrifice first came about around 20 years ago as a way of employees adding flexibility into their benefits package at no cost to the employer.

In an informal state, Salary Sacrifice has been with us since the 1970s when employers couldn’t give pay rises due to the government policies designed to control huge inflation. Valued employees under financial pressure but highly regarded by their bosses were provided opportunities to benefit in other ways. To overcome these constraints employees asked for everything from more holiday to enhanced pension instead of pay increases and thus Salary Sacrifice, although not named as such, was born.

In the last decade the benefit increased to a point where employees were funding everything from fridge freezers to wine, drawing attention from HMRC who, rightly, were concerned about the many employees paying tax subsidising the few who sacrificed for a classic Merlot or 70-inch plasma. This led to a big change in 2017 when the government took measure to ensure that tax revenue was preserved and ensured that this was maintained also by benefits through business.

Where is it now?

The benefits have always been about much more than the tax saving. There’s the convenience of ordering from your desk and paying via payroll, cost savings leveraging corporate buying power and funding rates, assistance for everything from health to cars through the employer and of course the NI savings.

HMRC, while amending benefits to introduce an employee benefit tax to remove the tax saving and employer NI charge to remove the employers NI saving, did ringfence and protect many arrangements and did allow employees to retain corporate savings and employees NI savings.

For some benefits such as cars, childcare and pensions little has changed. Cars have always been taxable and that will continue, with the biggest savings continuing to be made on the greenest cars. This comes with an added bonus of policy and manufacturer innovations which will make green cars incredibly good value from 2020 with some employees being able to run a pure electric car with 300 miles range for the same cost they currently spend on diesel!

Traditional Salary Sacrifice continues to be a mainstay of every employee benefits specialist, with increased opportunities for implementation of mental and financial wellbeing support for employees, which is increasingly dominating the HR agenda. Couple this with the need for employers to differentiate themselves in the battle to recruit and retain talent and salary sacrifice has a huge role in the future, whether that be for an iPad or an iPace (Jaguar).

It looks highly likely that Salary Sacrifice will continue to be a staple benefit for the foreseeable future, and why not? There are endless perks for employee and employer alike, with mostly no costs and an easy implementation process – especially with cars, where the products capabilities are growing every single year.